It’s a nervous time for stock investors as the principal US indices continue to grind their way higher, but on a total lack of conviction at present, along with the constant threat of a sustained move higher in the US dollar, this is reflected across the daily charts for the YM, the NQ and the ES. Of these, it is perhaps the NQ which reflects this nervousness the least, whilst the YM displays this sentiment the most, and it is interesting to note that in the last few weeks we have once again seen the NQ E-mini leading the way with a more bullish tone on days where risk on sentiment is strong, and a less bullish tone on those days when risk off sentiment is in the ascendancy. All of this of course is reflected in the VIX which remains in a consolidation phase as it continues to fail to break through some key levels of support.
If we start with the NQ E-mini, the current level of resistance is well defined in the 4550 region where it has been no surprise to see the market pause at this level, given the volume and price relationship of mid to late May, with the index rising from the 4375 level but on generally declining volume. However, what is also of interest is the selling associated with the down candles over this period, with the candle of the 26th May only recording average volume, and with the down candles of the 29th May and of yesterday also reflecting a similar picture. In addition, the price action of the daily candles also suggests buying as denoted with the wicks to the lower body, and confirming once again this is a market in a ‘pause and correction phase’, and not developing into a selling climax just yet. The key level of support below is now in place in the 4453 region, as denoted with the red dotted line. As I mentioned at the start, it is the NQ which is leading the way once again, and is perhaps a better barometer of risk sentiment, given the nature of the constituent companies in the index. These not only provide a more balanced view of risk, but also lead the economy once we begin to move into an early expansion phase. Overnight on Globex and into the early trading session the index has ticked higher to currently trade at 4514 at the time of writing.
Moving to the YM E-mini, here we can see the shift in sentiment which is marked in several ways, and also highlights one other key aspect, namely the divergence between the two indices, primarily as a result of the underlying constituents, with the YM E-mini representing a very narrow view. By contrast to the NQ E-mini, the move lower in the YM has been much deeper, with the index moving firmly below the platform of support in the 18,100 region which until recently has defined the ceiling of the breakaway. As a result the index is now beginning to test the secondary platform below in the 17,850 region. This was approached in yesterday’s trading session but fell well short as buyers returned once again to take the market higher and well off the lows of the day, reflecting the bullish sentiment which continues to remain in the ascendancy.
And finally to the VIX which continues to consolidate between the platform of support at 12.20, and the ceiling of resistance at 15.00. Both these levels have been tested over the last week, and both remaining intact for the time being. However, for a continuation of the longer term bullish sentiment we will need to see this platform of support breached, and breached firmly for momentum in the market to pick up through the summer months. Ahead lies the trap of an interest rate rise which now seems some months away, although Q4 of 2015 now seems increasingly likely, which in turn could see the indices top out at this point.
By Anna Coulling
Charts are from NinjaTrader and the trading indicators from Quantum Trading.
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